Transcript "What Does it Take to Succeed in Business?" Vic Korsun

US Department of State
STCU – Science and Technology Center in Ukraine
Commercializing Intellectual Property
Workshop
September 27 – 28, 2005
Baku, Azerbaijan
What Does it Take to Succeed in Business?
Vic Korsun (or Victor Fedorovich)
Consultant Coordinator, Science Centers Partners Program
[email protected]
1
Before I begin I would like to observe
something…
This talk was developed in a very American
style for a Western audience. For this
reason, if the very tone seems strange to you
– that’s because it isn’t part of your culture.
The message, however, is what your scientific
counterparts – and competitors – in the US
are hearing today.
2
What do you need to start a
successful business?
4 Things:
• One,
• Two,
• Three,
• Four,
A Plan.
A Team.
Money.
Timing and Luck.
• And, oh yes, maybe a 5th
It also takes PASSION.
…Your Technology.
Your passion.
3
Just as in science…
You need to do hundreds of experiments to find the
critical piece of new information…
Yureka!
It is the same in Business.
You have to keep trying until someone says…
YES!
4
In a Success-Oriented mind-set
Everything that might be called
A FAILURE, we call experience and
learning.
In the US, how many new businesses succeed?
One out of 10 succeed!
What happens to the other 9?
The managers of those 9 FAILED companies become
the (experienced!) management teams for other startups!
5
Is my technology good for
Licensing or Starting a Business?
If it is an Evolutionary improvement over an Existing Product
then…
The technology is usually better for Licensing.
If it is a Revolutionary new product with a
100 times improvement then…
it may be suitable for starting a company, if you determine the
market is $10-$50-$100 million or more.
6
You will need a valuable tool which is called…
The 30 Second Elevator Pitch.
You can use the elevator pitch whenever anyone asks you:
How’s it going? How are you? or
What’s happening with you. I haven’t seen you in a while.
You need the Elevator Pitch
on the tip of your tongue!
7
The 30 Second Elevator Pitch
Write the answers out ahead of time & memorize them.
1.
2.
3.
4.
What is needed in the market?
Who needs it & how many will they need?
What is your unique technology advantage?
How will you beat the competition?
You want it to be so compelling that the person turns to you
and says:
“Tell me more”, and gives you his card to make an
appointment.
8
You have many questions.
1.
2.
3.
4.
5.
6.
7.
What is the licensing deal that you make with a
company that wants to license your patents?
What is a Business Plan?
What is marketing? Who is my competition?
Why do I need international patents?
What kind of people should I find to help me?
What is Networking?
Why don’t they just give me the money?
9
I want to focus today on the investor
and you.
Before involving an investor (or a partner) you MUST make
decisions among yourselves, and they must be made in
writing, signed, and be legally binding by the various
organizations, institutions, departments, and scientists.
There cannot be ambiguity between the company and the
institute.
The investor risks are considerable, and your job is to
minimize those risks.
10
What is a Business Plan?
It’s a plan to make money!
What parts of the Business Plan will the investor or partner look at most?
• Executive Summary
• Management Team
• Financial Projections
The Executive Summary MUST tell the investor everything he needs to
know about your business opportunity on one page.
The Executive Summary must show him how the company will generate
profits and it must be believable.
I strongly advise you to get
a friend, consultant or business adviser to help you write it well.
Remember, a savvy investor
will reject 99% of the Business Plans he gets for many different reasons.
11
Business Plan Sections
1.
2.
3.
4.
Executive Summary
Company goals
Products or services
Market Analysis
•
Market need, Competition, Main competitors, Marketing
Strategy, Pricing strategy, Promotion strategy, Sales strategy
5.
Management team
6.
Five-year Financial Projections
•
Assumptions, Breakeven analysis, Cash flow
7.
Exit Plan
Very Important - The Business Plan must be
well written, clear, coherent and in good English.
Get help to write it.
12
An investor or business partner looks
for ASSURANCES:
•
•
•
•
•
•
•
•
The technology is protected by
patents,
The risks are manageable,
He can trust you,
You have a credible team,
The technology is useful,
It can be made into a product,
Someone will buy the product if
it is sold,
They’ll buy it at your estimated
price,
•
•
•
•
•
There is a BIG market,
The market timing is right,
The economic-political timing is
right,
Your country and his will not
become obstacles for him,
Your business will be profitable
for him and give him a VERY
GOOD return on his investment.
What does the investor or business partner need?
Profit!!!
13
Patents
The investor or partner is not interested in your technology.
He is interested in your PROTECTED technology, and
what profits it will generate!
To protect the technology you must have Patents, as Jud
has said earlier!
The investor wants assurances that…
when your company sells
$100 million of your product, the competition doesn’t sell
the other $900 million.
14
Your Patent needs to be protected
worldwide!
In Europe. In the US.
In Azerbaijan. In Georgia.
In Canada, and so on.
NO PATENT – NO SUCCESS!
And the best way is to do this is through the
PCT – Patent Cooperation Treaty, as Jud has
mentioned.
15
If you don’t do a PCT patent
YOUR COMPETITION will be able to duplicate your patent in
each of the countries that you are NOT registered in… and that
loses money for your investor.
Without a PCT the large companies will not even talk to you!
A savvy investor will take your patent to his own patent lawyer.
The investor will pay him to read your patent,
to tell him if the COMPETITION can get around your patent.
Now, you decide whether you want a Ukrainian patent or a PCT
patent…prepared by a patent lawyer.
16
Risks
The investor is a risk-taker.
However, for him to invest in your project, your Business Plan must assure
him that the risks he faces are manageable, and manageable by you.
His major fear is that he will lose money if you do not succeed.
What are the risks?
Market outlook and growth
Profitability
Management
Economic stability
Technology
Political stability
Ability to get his money and profits back to his own country.
17
Technology Risks
The investor worries that the technology is
• Early stage
•
•
•
•
•
•
Only a prototype
Not proven
Not adequately tested
Needs too much development
Too costly to manufacture, and
No one will buy it.
Technology is Necessary… But it is NOT SUFFICIENT.
18
Management
The investor (or partner) needs to be assured that your management
team is up to doing the job.
Who should be on your team?
• President (The scientist-inventor cannot be the president)
• VP for Sales and Marketing … Make sure he can sell timber to the
Siberians!
• Accountant …Honest and experienced.
Each individual has different responsibilities.
However, they ALL search for money!!!
19
Who else can help you?
•
•
•
•
•
Lawyers,
Marketing Consultants,
Respected Businessmen
Business writers, and
Recognized technology experts.
…All the people you didn’t really think you needed.
…It’s curious, but you just can’t do it all on your own!
STCU can advise you on how to find them.
20
Marketing
Most importantly, you or your partner need a MARKET!
The investor wants you to have a $100 million market.
What is a market?
A market describes who will buy the kind of product you will be selling.
For example, market research could say the market for an X-Ray System
is $1 billion. If the price of one unit is $100,000, that means that there are
10,000 potential buyers (hospitals) for that product per year.
($100 K x 10 K = $1 B)
21
Your market potential will be a portion
of the total.
If you or your business partner believe that you can
achieve 10% of the market (in a few years), then your
market share is $100 million. (10% of $1 B)
This means that you will be producing 1,000 units each
year, which breaks down to about 84 units each month.
Whatever percentage of the total market you believe you
can achieve, an investor wants your market share to be a
minimum of $100 million.
22
What does a Marketing Plan need to show?
•
•
•
•
•
•
•
Do you know what you are selling?
Do you have a product?
Do you know who will be buying it?
Do you know how many people will buy it?
Is the market growing, or is the market past its prime and is waning?
How will you determine the price for your product?
How will you respond to your market?
A good Marketing Plan may be the most difficult section of the
Business Plan because from your perspective it is
non-technical.
I strongly advise you to get
a marketing consultant or adviser to help you.
23
Good marketing research and analysis
…will produce two key pieces of information that are
critical for marketing:
1.
2.
How many buyers there will be for your product, and
What price they will be willing to pay.
This information will directly affect your financial projections and your
ability to generate a profit for your company.
Therefore, the information and analysis must be based on accurate,
researched and analyzed information.
The dollar amount you give for the total market has to be believable and
realistic, supported by verifiable data and facts.
24
Competition
A significant portion of the Marketing Plan is a serious
discussion about the competition.
If you say that you have no competition because your
technology is so revolutionary that there are no
products in the marketplace that compete with it – you
are wrong!
The investor will not believe you, and he will know that you
do not understand the market.
Beware: there is more to competition than meets the eye.
25
There is business competition and technology competition.
Business & Technology competition
Business competition are companies that have
“inferior” products compared to yours.
Technology competition – these are your friends
and colleagues, both worldwide and next door,
who are working in your scientific field and who
may “surpass” you if you don’t keep up.
26
Competition comes in many forms
Look for:
1)
2)
3)
Existing inferior legacy products that are too costly to
change,
Products that customers are used to, and will not change.
Other technologies that meet the customer’s needs,
YOU have to recognize what kind of competition is out there,
who the companies are, and HOW YOUR COMPANY
(NOT YOUR TECHNOLOGY) will beat them.
Customers don’t always buy the best or the cheapest.
Superior technology is not always better for the customer.
27
Losing money to the Competition
If the competition takes away part of what you consider to be your
market share then, in the business world, you are considered to be
losing money to your competition.
…This is often difficult to grasp, because usually we do not believe we
lost money that we never had.
But in the business world it means that you are not doing as well as
you said you would, and as a consequence your investor is losing the
money he thought he would be earning – because you projected it.
When you do not meet an expected projection there can be serious
consequences for the Management Team.
28
Technology
I know you will do a superb job here.
But the one thing that you may miss, which is very
important to state about your technology is:
• What is your unique technology advantage, and
• How will your technology beat the competition.
29
Writing the Marketing Section
Take the writing of the Marketing section of your Business
Plan very seriously. I cannot over emphasize the
importance of a good Marketing Plan.
The Marketing Plan is the engine of your company!
It takes a market to create a company.
Let me be perfectly clear:
WITHOUT A MARKET,
THE BUSINESS PLAN IS WORTHLESS!
30
Financial Projections
The Financial Projections at the end of the Business Plan must
show a detailed budget and revenue stream over 5 years.
The financial picture must be backed up with facts:
• How the money will be used,
• How you (or your partner) will produce product,
• How you (or your partner) will sell your product,
• How much revenue you (and your partner) will receive,
• What all the costs will be, and
• How much profit you will make.
31
Trust
The ultimate goal of your Business Plan, and your choice of
management team, is to convince the investor that he can TRUST
you to make money for him.
You must speak with the investor
HONESTLY!
If you are not honest with him… he will never come back, and
he will tell his friends never to go to you!
If you have not been honest with YOURSELF…
your investor will know that.
How will he know that?
He just will.
32
Embarrassment
I am sure that you are painfully aware that when a western
investor visits your facilities and laboratories that the facility
does not represent you well. There has been a decade’s worth
of neglect and very little financial support!
An investor’s confidence can be shaken by seeing crumbling
offices and buildings, and old outdated equipment that is not
up to western standards.
Do not hide or be embarrassed. Persevere.
You must know what it is that YOU have to offer that will be more attractive
to the investor than working in his own country.
33
Impediments for the Investor
Look at the impediments the investor faces by trying to
work with you:
Travel
Language
Facilities
Legal system
Contractual system
Financial system
Politics
The investor knows that working in another country,
especially a country that, until recently, did not recognize
patent law and ownership of private companies and
industry, is risky. He knows that he is assuming much
more risk than he would in his own country.
34
Know what you are offering
You must know what you are giving him that he cannot get somewhere
else.
Is it a brilliant idea?
Is it expertise or skills he cannot find in his own country?
Is it a dedicated team?
Is it determination that jumps out and is convincing?
Is it more professional people at a cheaper price?
Be honest with yourself and be forthright
with what it is you are offering.
35
More realisms…
Deviation from the stated plan sets off alarms for the investor.
Financial discrepancies and corruption immediately ruin a
relationship, for now and forever.
The investor will spread the word that you cannot be trusted. You
will not be able to get funding in the future, and more seriously,
this will create major funding hurdles for other scientists.
BE PREPARED – YOU WILL HAVE TO TALK AND NEGOTIATE
WITH MANY INVESTORS.
You will hear a lot of “No’s.” This is NORMAL and does not mean
that your technology or expertise is not good. It is part of the
process for finding money.
It can take 1 to 2 years to find the first investor or partner.
36
Value of your Contribution
In determining the dollar value of your contribution, you and
the investor will consider factors such as:
•
•
•
•
The stage of the technology development.
How much investment has already been spent.
How big is the market and how fast is it growing.
What are the risks?
– Technical risk
– Market risk
– Management risk, and
– Other risks.
37
Weighing your alternatives
Let me just say: If the investor believes that the value is $1
million but you believe that the value is $20 million, there is
very little likelihood that you will come to terms and have a
deal.
Therefore, decide how much you want to succeed rather
than making your point…that your technology is worth so
much…and no less.
Weigh the potential rewards of success versus not doing
anything or putting a deal off to another year.
38
Remember… 100% of zero is zero.
On the other hand, if your partnership or your company is
really successful, its value will climb and your portion will
also climb, so that the value of the success will far outweigh
the importance of who owns what percentage of the
company or partnership.
Decide what balance will make you HAPPY ENOUGH.
You may feel slighted and used, you may feel that you are
being treated unfairly in comparison with the investor. But
stop and consider: is your feeling worth stopping the deal?
The investor doesn’t mind if you make money. Therefore,
you shouldn’t mind if he makes money.
39
Are the alternatives really better?
Again… remember the better deal is the enemy of the
good deal.
Don’t wait for the BETTER DEAL!
While waiting for “better” to show up, “good enough”
can disappear and the timing and the opportunity may
be lost.
40
Formal agreement
The agreement between you and the investor or partner
establishes the basis for the work you will do together.
Signing the agreement document is a major milestone. You
will now have a formal and legal way of working with each
other, and each of you has the protection that the agreement
offers and spells out.
YOU MUST ADHERE TO THE TERMS
THAT YOU SIGNED!
41
How much money should I get?
The amount will depend on:
• Market conditions dictate value.
• What other similar companies get.
• Your Stage of Product Development.
• Riskiness – markets and technology.
…and after you use that up you’ll need to find more,
and you’ll be looking for new investors or partners.
…I never said this would be easy.
42
Where do I find money?
You cannot just say that investors and partners don’t exist here.
Try getting recommendations and advice from your collaborators on
your ISTC or STCU projects.
Attend networking meetings for entrepreneurs, venture fairs, and
investor forums. Such networking events do occur here.
For example, STCU throughout the year sponsors various meetings
where western individuals and companies come and participate.
43
Talk with visitors
At ANY meeting where you and other participants are asked to
introduce yourselves, take the opportunity to
USE YOUR ELEVATOR PITCH.
When you sit at the lunch or dinner table during conferences, sit next
to a stranger, someone who doesn’t necessarily speak Ukrainian.
Don’t sit next to a friend or colleague.
…Does he or she have money? Not likely.
You can find out though, if he KNOWS someone who could invest in
your company.
DO NOT ASK HIM OR HER FOR MONEY!
44
Networking
Be prepared to talk to them. You WILL NOT have a lot of time.
Your delegation from your institute has to talk to people at meetings,
technical conferences, trade show and other gatherings.
Throughout the year STCU sponsors groups of scientists from here to visit
the US at meetings and trade show. Again, more opportunities for you to
look for funding.
Use your Elevator Pitch.
If you visit a US university or a National Lab, ASK to meet with their
TECH TRANSFER OFFICE in addition to meeting their scientists.
DO NOT ASK THEM FOR MONEY.
ASK THEM FOR REFERENCES.
All of this is called NETWORKING.
45
Help each other
At your institutes, if you have western visitors and you
are asked to present your technical projects, begin your
talk with the Elevator Pitch as your introductory slide.
…Your non-technical visitors will love you for it.
By all means share and trade your lists of contacts with
your colleagues.
All of these approaches are excellent ways to
NETWORK and HELP EACH OTHER. If one of you
succeeds it will be that much easier for the next person.
46
Don’t count on someone else to do it.
If your institute HAS a person who is supposed to do this
FOR YOU, he or she needs ALL OF YOU INVOLVED IN
FINDING INVESTORS AND MONEY!
…Remember what I said the role of each member of the
management team REALLY was? Yes, that’s right, LOOK
FOR MONEY.
There is no way to escape this responsibility, so get used
to it. Ultimately, it is YOUR responsibility, it’s your
DESIRE, your PASSION, and your Technology.
47
SO: What does it take to succeed in
business?
You now know that technology alone is not sufficient.
It takes a Plan, a Team, and it takes…
Money and PASSION! It takes you!
You! . . . every inventive, creative and disciplined part of you.
48
Questions?
Thank you for your time and attention!
Vic Korsun (Victor Fedorovich)
Consultant Coordinator, Science Centers Partners Program
[email protected]
49
Do not translate Back-up slides
50
What Does it Take to Succeed in Business?
…All the things you were afraid to ask,
all the questions …you didn’t know you should ask, and
some of the answers …you never wanted to know…
 My presentation will touch on many issues dealing with
business start-ups.
 But the focus here is to encourage the development of a
success-oriented mind set.
 Time constraints allow me to concentrate mostly on the
essentials of success and overcoming obstacles to success.
Note: In my talk, whenever I say he it can also mean she.
51
Before I begin I would like you to do
something…
Please take out a piece of paper and write
down the telephone number of your best
friend.
I will get back to this later…
52
If you want your company
to be successful,
YOU must become a LEADER.
You are your company’s leader
and you must ACT as a leader.
Others will follow.
53
How many new businesses succeed in
the US?
One out of 10 succeed!
What happens to the other 9?
The managers of those 9 FAILED companies become the
management teams for other start-ups!
In a Success-Oriented mind-set
Everything that might be called
A FAILURE, we call experience and learning.
54
Hit that Homerun!
With the chance of success being 1 out of 10,
it means that one successful company has to
pay off big to make up for the other 9 losses.
That ONE major success is called a
HOMERUN (as in baseball).
The investor looks for you to hit HOMERUNS!
55
Formal agreement
The agreement between you and the investor establishes the
basis for the company and governance of the company.
Signing the agreement document is a major milestone. You
will now have a formal and legal way of working with each
other, and each of you has the protection that the agreement
offers and spells out.
YOU MUST ADHERE TO THE TERMS
THAT YOU SIGNED!
56
How many new businesses succeed in
the US?
One out of 10 succeed!
What happens to the other 9?
The managers of those 9 FAILED companies become the
management teams for other start-ups!
In a Success-Oriented mind-set
Everything that might be called
A FAILURE, we call experience and learning.
57
Money
What is an Exit Strategy?
It is the ways the investor earns a return, or profit, on his
investment in the company, and then “exits” at some point in
the future with his profits.
Typically there are 3 ways for this to happen.
1. Your company becomes profitable in a few years.
This is the way it happens for most companies, if they succeed.
2. The company gets sold to another company.
This happens to some companies.
3. The company is so successful and has grown so much that the
company decides to sell its shares to the public through an IPO.
This happens to only a few start-up companies.
58
What is an IPO?
…Initial Public Offering
That’s when your privately owned company sells
shares of stock to the public on Wall Street.
The company becomes part of the stock market and
becomes a publicly traded company with their
shares being sold worldwide.
But that’s a whole other story. Not today.
…
59
Determining Value
During negotiations the “paper value” of the company will be
determined between you and investor. This is a very important
period of negotiation.
The “value” of your company becomes what others are willing to pay
for it.
To come to an agreement the investor has to agree with you as to the
dollar value of your contribution to the new company.
In assigning a dollar value to your contribution you have to be
realistic and flexible. If you assign a dollar value that is too high visà-vis the dollar investment of the investor, it is unlikely that you will
come to terms.
60
Division of Equity
When you create the legal company, the founders divide up
the ownership of the company:
• The scientist gets a certain % of shares,
• The institute may get a % of shares,
• The founding investor will get a certain % of shares,
• A certain number of shares are given to the management
team, and
• A certain number of shares are reserved for future
distribution.
61
What are the sources of funding
Venture Capitalists (VC’s)
Angels
Banks
Companies
You
Your family
Your friends
Your company through selling products
It takes a LONG time to find money.
12 months, 24 months, easily, or even 36 months.
…Remember those experiments?
…Finding $$$ also takes a long time.
62
Who are Angels?
An angel is an investor who wants to invest
his money in start-up companies!
These are the people you need to find first.
Angels are usually wealthy individuals who
don’t belong to venture capital firms.
Venture capitalist firms will usually fund
companies who have received some amount
of funding from elsewhere first.
63
Where do I look for money first?
• First, use your own.
• Then your family’s.
• Then your friends’ and colleagues’.
This is usually the case in the US and Europe.
Your situation here may be different. However, you should at
least be able to show an investor how much of your personal
time, energy, and resources you have put in.
Don’t overlook friends and colleagues. A few people putting
money together jointly can generate initial capital for starting
a company.
Your friends would contribute because they BELIEVE in you.
64
Skin in the Game
The investor wants to see your commitment, that is, YOUR SKIN IN
THE GAME – a term used in the US. This will convince him that
you will work as hard as possible to hit that homerun.
He wants you to be MOTIVATED and he believes that your own
“skin in the game” will motivate you the most.
Remember those 40 hours per week.
Forget that.
60 hours…80 hours…
Whatever it takes!
65
Oh, I almost forgot!
I had asked you at the beginning of my talk to
write down a telephone number.
If you could take it out again please…
Now that you know how to find $$$ for your company,
you can begin your search by calling your best friend
and practicing your Elevator Pitch on him or her.
This will get you started…
66
Keep larger goals in mind
It is necessary for you to keep the larger goals in mind. You should not
believe that you are selling out to the capitalists. You have to get
beyond your past. You MUST get into the business game.
I am NOT saying to you that the market-driven system is the best that
there can be, but it is the system that exists today to play in. You must
advance yourselves.
You have to get past: Is someone going to cheat you?
Remember, 100% of zero is zero.
You want and need to get a piece of the pie, …and then grow the pie.
Know and trust yourself. From this strong position you can learn to
know and trust the investor.
67
Be Realistic!
Figure out ahead of time what will be fair to you.
BE REALISTIC.
DO NOT say, a French scientist would get more.
Remember you are not a French, English, American
or Japanese scientist, and you have not been in the
business game long enough yet.
Success for you cannot be measured by the standards of a
German scientist.
Once the agreement is signed stop comparing. DO the best job
that you can.
68
Monitor yourself
Here’s a tool you can use to stay on target:
Keep a running list for 3 specific activities that you MUST do every day.
• Count the number of times you used the Elevator Pitch that day, and
write it down.
• Count the number of new contacts you found that day, and write that
down.
• Count the number of contacts you called or e-mailed that day, and write
that number down.
What you are doing in this process is called COLD CALLING.
All of this IS super difficult… But you have been asked to do
super difficult things before, maybe even impossible things…
69
You can do it!
There’s more to it than what I was able to say to you today,
of course.
I couldn’t tell you EVERYTHING in just 20-30 minutes.
Remember, we believe in you.
We believe that you can succeed in business.
70